Cole, Schotz, Bernstein, Meisel & Forman, P.A. v. Owens

• Decision Date: 16 July 1996
• Citation: 679 A.2d 155,292 N.J.Super. 453
• Parties: COLE, SCHOTZ, BERNSTEIN, MEISEL & FORMAN, P.A., Plaintiff-Appellant, v. Carole OWENS, Defendant-Respondent. Carole OWENS, Plaintiff, v. COLE, SCHOTZ, BERNSTEIN, MEISEL & FORMAN, P.A. and Rita K. Nadler, Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 453

292 N.J.Super. 453

679 A.2d 155

COLE, SCHOTZ, BERNSTEIN, MEISEL & FORMAN, P.A., Plaintiff-Appellant, v. Carole OWENS, Defendant-Respondent.

Carole OWENS, Plaintiff, v. COLE, SCHOTZ, BERNSTEIN, MEISEL & FORMAN, P.A. and Rita K.

Nadler, Defendants.

Superior Court of New Jersey Appellate Division.

Argued March 13, 1996.

Decided July 16, 1996.

Christine Smith, Hackensack, for appellant (Cole, Schotz, Bernstein, Meisel & Forman, P.A., attorneys; Thomas J. La Conte and Wendy F. Klein, on the brief).

William L. Gold, South Orange, for respondent (Brown & Gold, attorneys; Mr. Gold, on the brief).

Before Judges KING, KLEINER and HUMPHREYS.

The opinion of the court was delivered by

HUMPHREYS, J.A.D.

This appeal is from an order releasing certain funds from escrow. An earlier order permitted a notice of lis pendens to be filed by the law firm of Cole, Schotz, Bernstein, Meisel and Forman ("Cole") against real property owned by its former client, Carole Owens ("Owens"). The lis pendens served as notice that Cole was asserting an attorney's lien against the property. The lien was to secure fees owed by Owens to Cole. Due to the filing of the lis pendens, proceeds from the later sale of the property were placed in escrow.

After a thorough review of the record and the arguments of counsel, we hold that Cole does not have a lien on the property and the court should not have permitted the lis pendens to be filed. The order releasing the funds from escrow is affirmed.

I

Cole was engaged to represent Owens in March 1990 in a matrimonial action. In July 1991, Cole moved for leave to withdraw as her counsel. In the same motion, Cole sought leave to file "a statement with the Bergen County Clerk evidencing the existence of a charging lien" on behalf of Cole pursuant to N.J.S.A. 2A:13-5. Cole alleged that Owens owed Cole some $40,000 in legal fees. An order was entered on August 12, 1991 relieving Cole as counsel and granting leave to Cole "to file a lis pendens evidencing its attorney lien pursuant to N.J.S.A. 2A:13-5."

Cole filed the lis pendens on August 16, 1991, against real property in Englewood, New Jersey owned solely by Owens. The property was being sold. An escrow agreement was entered into on November 4, 1991, under which the lis pendens would be discharged and $42,400 would be held in escrow "until the resolution of the dispute for attorney's fees" between Cole and Owens. The agreement also provided that the "matter of counsel fees may be referred to arbitration"; that neither party released any claims against each other, including Owens' claims as to the legality of the lis pendens; and that if there was any court determination that the lis pendens "was incorrectly filed," then the escrow funds would be released. The parties to the agreement included Cole, Owens and the trustee in bankruptcy for Cole's husband.

Cole by letter dated November 4, 1991, informed Owens that she had the option of pursuing fee arbitration. See R. 1:20A-6. The letter contained the name and address of the person to contact regarding that option.

Owens filed a motion dated November 22, 1991 to have the escrowed funds released to her. She argued that the lis pendens was improper because the requisite fee arbitration notice had not preceded the filing of the lis pendens, see R. 1:20A-6, and because N.J.S.A. 2A:15-6 did not allow a lis pendens to be filed in a matrimonial action. The judge denied the motion saying he saw nothing in the lis pendens statute which would prohibit the use of a lis pendens. He also said that litigation had to be pending and therefore he required that litigation be instituted within fourteen days.

On February 3, 1992, Cole instituted suit for its fees. In May 1993, Owens moved to dismiss the suit on the ground that Cole failed to comply with R. 1:20A-6. She also sought other relief including the release of the funds in escrow. The motion was denied. We denied a motion for leave to appeal.

In July 1993, Owens filed a malpractice action against Cole. Owens unsuccessfully moved to consolidate that action with the Cole action for fees. We denied leave to appeal from the order denying consolidation. Thereafter, Owens moved unsuccessfully for summary judgment in the attorney fee action.

Cole then moved successfully for summary judgment dismissing Owens' malpractice complaint on the ground of the entire controversy doctrine. Owens appealed. We reinstated the malpractice action and consolidated it with the attorney fee action. We reasoned that Owens had raised the issue of attorney negligence as a defense to the attorney fee action and thus Owens should be allowed to proceed with her malpractice action.

In February, March and June 1994, Owens unsuccessfully moved to dismiss Cole's complaint in the attorney fee action and to release the funds in escrow. In October 1994, a consent order was entered staying the trial of the consolidated action pending the completion, which has not yet occurred, of the underlying matrimonial action.

In June 1995, Owens again moved to have the funds held in escrow released to her. She relied on this court's decision in Mateo v. Mateo, 281 N.J.Super. 73, 656 A.2d 846 (App.Div.1995). The judge found Mateo controlling and held that the order permitting Cole to file a lis pendens was void. We granted Cole's motion for leave to appeal and stayed release of the escrow funds pending appeal.

Cole argues that: (1) the Mateo decision is distinguishable; (2) Owens has never availed herself of the fee arbitration remedy, and has never indicated that she would do so; and (3) the motion for leave to file the lis pendens need not have been preceded by a Pre-Action Notice because: (a) the motion was not a lawsuit to recover a fee or a petition to determine and enforce an attorney's lien; and (b) the motion constituted "ancillary legal action" which is specifically exempted under R. 1:20A-6.

II

The Supreme Court has provided for arbitration of attorneys' fees since 1978. The underlying policy is to promote "public confidence in the bar and the judicial system." See generally Saffer v. Willoughby, Jr. 143 N.J. 256, 263, 670 A.2d 527 (1996). Under our court rules, a client has the right to proceed with arbitration. See R. 1:20A-3. An attorney may not institute a lawsuit to recover a fee without giving the client a Pre-Action Notice. The notice advises the client as to the client's right to request fee arbitration and the procedure therefor.

The pertinent court rule provides: "No lawsuit to recover a fee may be filed until the expiration of the 30 day period herein giving Pre-Action Notice to a client; however, this shall not prevent a lawyer from instituting any ancillary legal action." R. 1:20A-6.

Ancillary legal action is authorized by N.J.S.A. 2A:13-5. That statute provides:

After the filing of a complaint or third-party complaint or the service of a pleading containing a counterclaim or cross-claim, the attorney or counsellor at law, who shall appear in the cause for the party instituting the action or maintaining the third-party claim or counterclaim or cross-claim, shall have a lien for compensation, upon his client's action, cause of action, claim or counterclaim or cross-claim, which shall contain and attach to a verdict, report, decision, award, judgment or final order in his client's favor, and the proceeds thereof in whosesoever hands they may come. The lien shall not be affected by any settlement between the parties before or after judgment or final order, nor by the entry of satisfaction or cancellation of a judgment on the record. The court in which the action or other proceeding is pending, upon the petition of the attorney or counsellor at law, may determine and enforce the lien.

[Ibid.]

In Mateo v. Mateo, supra, 281 N.J.Super. at 79, 656 A.2d 846, we said that an application to establish an attorney's lien "must be brought as a step in the main cause, but tried as a separate and distinct plenary action." See also Panarello v. Panarello, 245 N.J.Super. 318, 585 A.2d 428 (Ch.Div.1990); Rosenfeld v. Rosenfeld, 239 N.J.Super. 77, 570 A.2d 1026 (Ch.Div.1989). We also said that an action for attorney's fees "must be dismissed where the attorney does not allege that he or she gave the client notice of the availability of the Fee Arbitration Committee proceedings." Mateo, supra, 281 N.J.Super. at 80, 656 A.2d 846; see also Rosenfeld v. Rosenfeld, supra, 239 N.J.Super. at 78, 570 A.2d 1026 (Pre-Action Notice must be given when petition filed to fix an attorney's lien); cf. Chalom v. Benesh, 234 N.J.Super. 248, 260, 560 A.2d 746 (Law Div.1989) (defendants estopped from relying on failure to give Pre-Action Notice).

In Mateo, the attorney did not file a complaint demanding payment of attorney's fees but "simply moved in the present action for an attorney's lien pursuant to N.J.S.A. 2A:13-5." Mateo, supra, 281 N.J.Super. at 79, 656 A.2d 846. We said that the client is entitled to be advised of the right of fee arbitration before or at least at the time the client is embroiled in litigation which may result in a lien being placed upon the client's property. Id. at 79-80, 656 A.2d 846.

Here, as in Mateo, Cole initially moved for the imposition of a lien instead of filing a complaint or giving the Pre-Action Notice. Consequently, under Mateo, the lien is invalid. Cole, however, argues that giving Owens a Pre-Action Notice at the time Cole's motion was filed would not have benefitted Owens because she intended to pursue a malpractice claim, and a malpractice claim cannot be determined in a fee arbitration proceeding. See R. 1:20A-2(c)(2); see also Saffer v. Willoughby, Jr., supra, 143 N.J. at 265-266, 670 A.2d 527. Consequently, the Pre-Action Notice, Cole argues, need not have been given at that time, and the "ancillary proceeding" should not be dismissed.

The argument is unpersuasive. What Owens might have done or not done if she had received the notice at the proper...